Shedding Our Smallness

TAKING pride in our smallness — like blowing our horns for having the smallest fish, smallest monkey and smallest deer — has no place in the 21st century. New records are hailed in bigness.

But when it comes to credit available to small businesses, it seems we are still stuck with our penchant for smallness.

The Bangko Sentral ng Pilipinas (Central Bank of the Philippines) can go a long way in shepherding banks and other organizations to lend to micro small and medium enterprises.

Bank access to credit by small businesses — more particularly the lack of it — has long been identified as one of the many reasons why the Philippines has too many tiny, small and medium sized enterprises that never grew. Many remain in what the Employers Confederation of the Philippines (ECOP) calls the informal sector, better known as the underground economy.

They remain hostage to informal lenders — from the “bombays” that prey on market vendors to the five-six operators (loan sharks).

The advocacy to pry open doors of private banks to small businesses has been going on for at least 30 years. Both houses of Congress have been responsive to that clamor and had enacted several laws to address the problem.

One of the most significant was the Magna Carta for Micro, Small and Medium Enterprises. Its latest amendment, RA 9501, has been strengthened to the point that banks are now mandated by law to allocate at least ten percent of their lending funds to MSMEs.

So far, based on complaints we get from exporters, it appears only a few private banks have responded to this new call. Banks have somehow managed to get around the law without running afoul with its provisions.

Congress has put on the legislative mill another proposal, the Credit Surety Fund Act of 2011 (HB 4970), whose two salient features are devolution of financing to organized groups such as cooperatives in rural areas and the institutionalization of an insurance system for MSMEs.

In capsule, the proposed law seeks to further strengthen the Magna Carta by expanding credit access and assuring banks that if a borrower defaults in his loan payment, banks can draw at least part of the unpaid loan from its insurance. In other words, loans are insured. The present practice limits insurance to bank deposits, not to loans.

PHILEXPORT president Sergio R. Ortiz-Luis Jr. lauded the congressional initiative as a win-win solution to the problem of credit access. He sees it as a valuable supplement to the existing law, making it easier for small businesses to borrow money from banks for expansion or operational requirements.

In a position paper he sent to Rep. Erico Aumentado whose committee is finalizing the house version of the bill, Ortiz-Luis suggested several additions to further put muscle to the proposed law. One is that interest rates must be MSME-friendly.

The export leader further suggested that business support organizations like industry associations be allowed to go into wholesale lending to their members. Some industry associations have successfully done this despite their limited resources. Their proven track record can be used as a form of guarantee for the lending bank.

Equally important, Ortiz-Luis wants that under the new law, the BSP exercise transparency by informing the public about banks’ lending records and not just the total amount lent. This should discourage them from resorting to alternative compliance modes like parking their funds with the BSP, which is not used in the real economy, or in double counting the loans.

Money put in business enterprises, whether these are loans or investments, is what fuels growth and the creation of more wealth and more jobs. The more of it plowed into productive uses, the faster it helps to grow an economy.